Only the current frame takes up memory.
We are investigating a few different solutions to this problem about doing HD graphics for iPhone4. I have a few ideas that might work.
Not promising that it will be implemented or anything - but I would like to hear you out on this idea:
You develop your game for iPhone4 with HD graphics. At runtime(load time) the graphics will automatically get downscaled to iPhone3 size. That way you only need to make the game once for the high resolution while it will look good on the low resolution screens.
There is one disadvantage to this though: You cannot make any specially optimized graphics for the lower resolution as they would be automatically generated.
What do you think of this?